Given the recent FOMC meeting minutes and subsequent market reactions, the S&P 500 Index (CME: ES) has shown a downward trajectory influenced by evolving sentiments on Fed interest rate decisions and economic uncertainties. The index, facing a fifth consecutive session of losses, reflects investor caution after the Fed minutes hinted at potential rate cuts in 2024 but lacked clarity on timing and magnitude.
Fundamentally, market sentiment swung due to policymakers’ acknowledgement of economic uncertainty and lingering questions on the pace of rate adjustments. The reduced likelihood of aggressive rate cuts initially expected by markets led to profit-taking and recalibration of projections, contributing to the S&P’s recent decline.
This cautious stance by the Fed, coupled with recent data suggesting a slowdown in economic activity, has fuelled concerns about a potential recession and prompted investors to seek safer havens.
Technical
The 4-hour chart shows that the index futures are currently trading flat after a sustained decline, with the price action residing below the 20-SMA (green line), 50-SMA (blue line), and recently breaking below the 100-SMA (orange line). This bearish technical pattern indicates that downward momentum is dominant, and further losses could be imminent.
The recent bearish crossover of the 20-SMA below the 50-SMA, known as a “death cross,” reinforces the bearish bias. This technical indicator often precedes significant downtrends, adding further weight to the bearish outlook. The RSI is currently hovering at oversold levels (23.77), indicating that the market may be due for a temporary bounce. However, given the overall bearish sentiment and technical indicators, any upward movement will likely be short-lived.
The immediate support level lies at 4,721.50, followed by 4,697.00. A break below these levels could trigger further selling pressure and push the index towards lower lows. On the upside, resistance lies at 4,764.00 and 4,786.75. A sustained move above these levels would signal a potential trend reversal.
Summary
The confluence of bearish technical indicators, cautious Fed commentary, and a risk-averse market sentiment indicate that the S&P 500 is likely to remain under pressure in the short term. While oversold conditions may offer temporary reprieves, the overall bias remains heavily tilted towards the downside.
The technical breakdown on the 4-hour chart indicates further downside potential, with short-term trading opportunities existing towards the 4,721.50 support level. However, a break above the immediate resistance zone at 4,764.00 could offer a counter-trend opportunity.
Sources: TradingView, Trading Economics, Federal Reserve, MarketWatch, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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